JLL Releases Global Real Estate Transparency Index

The latest report from JLL shows that real estate transparency has become a main focal point for investors.
Jeremy Kelly, JLL

Jeremy Kelly, JLL

Chicago—It’s not a surprise that the top 10 most highly transparent real estate markets attract 75 percent of the world’s investment, but the biennial Global Real Estate Transparency Index produced by JLL and LaSalle Investment Management does have good news from many other regions and markets as well.

“These results are encouraging as they highlight the steady advances the global real estate industry is making,” Jeremy Kelly, director of Global Research Programmes at JLL and the main author of the report, said in a prepared statement. “Improvements are down to a number of factors: initiatives to deepen the availability and quality of market data and performance benchmarking, the enactment of new legislation in several countries, the introduction of higher ethical standards, and the wider adoption of green building regulations and tools.”

The index, which examined 109 markets this cycle, is considered an essential guide for companies operating in foreign markets and measures transparency by looking at factors including data availability, governance, transaction processes and the regulatory and legal environment. Transparency is important for both commercial real estate investors and occupiers because it reduces uncertainty in cross-border transactions.

Capital allocations for real estate are expected to grow from about $700 billion now to more than $1 trillion within the next decade, JLL forecasts. The growth means investors are demanding more improvements in real estate transparency.

The top four positions on this year’s index are dominated by the Anglosphere, or English-speaking nations, with the United Kingdom taking the top spot followed by Australia, Canada and the United States in fourth. They are considered highly transparent and are joined on that part of the index by France, New Zealand, Netherlands, Ireland, Germany and Finland rounding out the top 10. Markets considered transparent start at 11 with Singapore, followed by Sweden, Poland, Switzerland and Hong Kong at 15.

Continental Europe is catching up with the Anglosphere with Germany ranked 9, moving into the highly transparent group for the first time and France consolidating its position in the top tier.

Kelly told Commercial Property Executive the growth of REITs in Germany is one of the factors behind the country’s move into the highly transparent group. It’s also one of the countries that have been helped by the growing use of technology in the commercial real estate sector as both a way to digitize and analyze data.

“We are seeing examples in the U.S., the UK and continental Europe of tech firms really pushing the boundaries and really enabling much more granular, real-time information to be available,” he said. “It’s really opening up the transparency in those top-tier markets.”

The technology is also “enabling some of those countries lower down the transparency list to leap frog,” he said, citing nations like Ecuador, Ghana and Kenya that have begun digitizing their land registries.

Kelly said other factors play into whether a country moves up the index ranking from cycle to cycle. He said that Poland has a very “collaborative real estate industry,” noting that real estate agents meet on a regular basis to share information and produce a consistent set of metrics.

Asia Pacific has been the most consistently improved region with Australia continuing to hold the top spot as the region’s most transparent real estate market. The report noted that Taiwan, which moved into the transparent category for the first time at 23, was the biggest improver in the region. Kelly said Japan also moved up in the hierarchy, jumping seven places up to 19, adding that it was “quite an impressive improvement.”

Kelly said there has been more cross-border investment in Japan in recent years, particularly in the retail and industrial sectors and not just the office sector, which has historically been the focus of investment. He also said government officials have been identifying areas that need improvement.

China’s “Alpha” cities of Beijing and Shanghai are now on the cusp of the transparent portion of the index. A press release for the Asia Pacific markets noted that the major factor driving improvements had been increased availability and quality of market data. Some countries are also improving performance benchmarking, enacting new legislation, introducing higher ethical standards and adopting more green building regulation and tools.

Kelly noted that are “multiple Chinas in a way,” referring to the gap in transparency between top-tier cities like Shanghai and Beijing and lower tier cities. He said Shanghai has had a ten-fold increase in investments and five-fold increase in absorption in the last decade. Improvements in transparency have been seen in part, Kelly said, by a “strong anti-corruption drive in China.”

India has benefited from digitized land records and legislation to simplify procedures for acquiring land and determining fair compensation.

“They are taking steps to improve the ethical standards of the industry,” Kelly said of Indian officials.

For countries and markets still in the semi-transparent, low transparency and opaque categories, Kelly said lack of enforcement and oversights are among the bigger problems.

Jacques Gordon, LaSalle Investment Management’s Global Head of Research and Strategy, said that while there have been steady advances in some nations as a result of government and industry efforts, there are still transparency problems to address.

“There are too many examples of opaque and corrupt practices, poor corporate governance and failures in regulatory enforcement that are resulting in serious consequences for society, business activity and for investment,” Gordon said in a prepared statement. “Investors and tenants will bypass countries unable to address these shortcomings, and will gravitate instead to more transparent markets.”